Managerial Finance

Purpose of the assignment
The purpose of this assignment is to assess students' understanding in analyzing and interpreting of the company's financial statement data, evaluating capital projects and examining the impact of capital structure on firm value.This assignment is an individual assignment and aims to assess the students' conceptual, computational, analytical and critical thinkingskills.

Assignment report
The group assignment should be composed as a formal report, including an introduction section, discussion and analysis of the financial ratios, capital budgeting analysis and a discussion on the impact of capital structure on firm value. A copy of the company's financial statements should be attached as an appendix.

Responsibilities
• Choose one publicly traded company for your analysis.
• The student is responsible for selecting suitable company and submitting the project report on time.
• This assignment will require you to make use of several resources, including company websites, annual reports, financial statements, etc. Please appropriately cite any information that is not yours but included in your report.

Data
The financial statement analysis should cover a three-year period. Obtain at least three years of financial statements and compare the financial performance of the company over the selected periods.

Assignment questions

Question 1

Choose one company from the GCC region for your project. Discuss and analyze its financial performance over a period of three years (2020-2022) and identify the weaknesses and strengths of the company. Use graphs and charts when necessary to present your results. The selected company should be a publicly traded (listed on a stock market) firm. To assess the financial performance of the company, calculate and interpret the following ratios.
(a) Liquidity ratio
(b) Profitability ratio
(c) Leverage ratio
(d) Market value ratios

Question 2
Explain what capital structure is and discuss how capital structure affects the value of a firm? Use examples to support your discussion.

Question 3
Assess the profitability of the following projects using the capital budgeting techniques such as payback period, NPV and IRR.

(i) Assume that you want to purchase a machine for $1,000,000 with a life of 10 years. The machine is expected to generate annual revenues of $300,000 and results in annual operating expenses of $100,000. Assume that the machine will depreciate over 10 years using straight-line depreciation. The corporate tax rate is 40%. Suppose that the discount rate is 9%.

Required:
(a) Identify the payback period of the project.
(b) Determine the profitability of the project using the NPV and IRR methods.
(c) Discuss whether you should purchase the machine.

(ii) Al Shams Capital group is planning to invest its 500 million dirhams in one or more of the following projects. Suppose that the average cost of capital is 10%. The proposed initial investment and expected net cash flows for each alternative projects are provided as follows:

Required:
(a) Compute the payback period for each project.
(b) Compute the NPV and IRR of the projects.
(c) Rank the projects based on their payback, NPV and IRR results.
(d) As a manager, how would you decide to allocate your funds on the most profitable project?